2020 (8) TMI 658 - AT - Income Tax

Bogus purchases - addition made by AO off non-genuine and bogus purchases by applying profit rate at the rate of 12.5% - HELD THAT - Neither the AO nor CIT(A) has doubted the sales made by assessee out of these bogus purchase. Assessee has produced all the necessary documents in support of purchased transactions such as purchase invoices, purchase register, sales register, stock register, bank statement evidencing payment made by account payee cheque etc. But it is a fact that the assessee could not produce the transportation evidences or expenditure incurred on account of transportation in regard to these purchases. Hence, a reasonable profit can be estimated because the estimation of profit is on higher side -Both the authorities lower had admitted assessee have made sales which is not denied out of these purchases. It means that the assessee might have purchases from grey market and also saved VAT. Hence, a reasonable profit on these bogus bills can be estimated. Hence, estimate the profit on these bogus bills at the rate of 5% and direct the AO to recompute the income accordingly. Appeals of assessee are partly allowed.

Summary

Issues:
1. Addition of non-genuine and bogus purchases by applying profit rate.
2. Reopening of completed assessment under section 147 of the Income Tax Act.

Analysis:

Issue 1: Addition of non-genuine and bogus purchases
The case involved the appellant challenging the order of the Commissioner of Income Tax (Appeals) confirming the addition made by the Assessing Officer (AO) for non-genuine and bogus purchases. The AO applied a profit rate of 12.5% on the alleged bogus purchases. The appellant contended that the CIT(A) erred in upholding the assessing officer's action of reopening the completed assessment under section 147 of the Income Tax Act, 1961. The AO made additions to the returned income of the assessee for AY 2010-11 and AY 2011-12, respectively. The appellant failed to establish the genuineness of the purchases by not providing essential documents such as transportation bills, delivery challans, and weighment slips. The CIT(A) confirmed the addition by emphasizing the involvement of the appellant in receiving accommodation bills from hawala operators. However, the appellant's sales from these purchases were not disputed. The appellate authority estimated a reasonable profit rate of 5% on the bogus bills and directed the AO to recompute the income accordingly, partially allowing the appeals of the assessee.

Issue 2: Reopening of completed assessment under section 147
The appellant contested the reopening of the completed assessment under section 147 of the Income Tax Act. The AO had reopened the assessments for AYs 2010-11 and 2011-12 based on information received regarding purchases from hawala parties providing bogus bills. The appellant argued that the reasons assigned for reopening the assessments were contrary to the provisions of the Income Tax Act and rules made thereunder. The CIT(A) upheld the AO's action, leading to the appellant challenging this decision. The appellant's failure to produce the parties involved and essential evidences further complicated the case. Despite the lack of specific details to establish the genuineness of purchases, the appellate authority justified the addition based on the benefits derived by the appellant from using accommodation entries. The judgment referred to relevant legal precedents to support the decision to uphold the addition made by the AO.

In conclusion, the judgment addressed the issues of addition of non-genuine purchases and the reopening of completed assessments under section 147 of the Income Tax Act. The decision highlighted the importance of providing necessary documents to establish the genuineness of transactions and justified the profit rate estimation on bogus bills. The judgment provided a comprehensive analysis of the legal aspects involved in the case, ultimately partially allowing the appeals of the assessee.